Question 1

The loss on option purchase is always:

Accepted Answer

A) limited to the premium paid. 
B) limited to the margin maintenance requirement. 
C) the difference between the strike price and the premium paid. 
D) None of the above 
A) limited to the premium paid. 
B) limited to the margin maintenance requirement. 
C) the difference between the strike price and the premium paid. 
D) None of the above A

Question 2

Value Line futures contracts trade on the Kansas City Board of Trade.

Accepted Answer

A) True 
 B)False  True

Question 3

Some investors are prohibited by law from participating in the futures market.

Accepted Answer

A) True 
 B)False  True

Question 4

An investor bought a March S&P 500 Index futures contract in December for $1,490.05.After six months the contract value went up to $1,539.95.The contract has a multiplier of 250.With an initial margin of $20,000,what is the annualized percent return on margin?

Accepted Answer

A) 25.28% 
B) 29.8% 
C) 30.8% 
D) 120.64% 
E) 124.76% 
A) 25.28% 
B) 29.8% 
C) 30.8% 
D) 120.64% 
E) 124.76%

Question 5

A primary difference between stock options and stock index options is:

Accepted Answer

A) stock index options tend to be more highly speculative. 
B) stock index options are ALWAYS settled ONLY for cash. 
C) there is rarely a premium on stock index options. 
D) None of the above 
A) stock index options tend to be more highly speculative. 
B) stock index options are ALWAYS settled ONLY for cash. 
C) there is rarely a premium on stock index options. 
D) None of the above

Question 6

Futures provide a more efficient hedge than options,in that gains and losses can be more fully offset by futures contracts.

Accepted Answer

A) True 
 B)False

Question 7

Investing in stock index futures is one way to reduce or eliminate unsystematic risk.

Accepted Answer

A) True 
 B)False

Question 8

With a given size portfolio,the higher the portfolio beta,

Accepted Answer

A) the more likely the portfolio is to go up,rather than down. 
B) the more likely the portfolio is to go down,rather than up. 
C) the fewer contracts necessary to hedge the portfolio. 
D) the more contracts necessary to hedge the portfolio. 
A) the more likely the portfolio is to go up,rather than down. 
B) the more likely the portfolio is to go down,rather than up. 
C) the fewer contracts necessary to hedge the portfolio. 
D) the more contracts necessary to hedge the portfolio.

Question 9

The overuse of portfolio insurance in the market may be dangerous because:

Accepted Answer

A) a large amount of selling may take place simultaneously. 
B) a small amount of arbitraging may take place simultaneously. 
C) in a down market,the insurance companies may not be able to pay for the losses. 
D) All of the above 
A) a large amount of selling may take place simultaneously. 
B) a small amount of arbitraging may take place simultaneously. 
C) in a down market,the insurance companies may not be able to pay for the losses. 
D) All of the above

Question 10

Each of the major stock index futures markets has a corresponding stock index options market.

Accepted Answer

A) True 
 B)False

Question 11

When basis increases with the passage of time,this is thought to be:

Accepted Answer

A) a neutral indictor. 
B) a negative sign. 
C) a positive sign. 
D) an indication of market manipulation. 
A) a neutral indictor. 
B) a negative sign. 
C) a positive sign. 
D) an indication of market manipulation.

Question 12

An arbitrage is trading in:

Accepted Answer

A) options and futures at the same time. 
B) two different markets when the price of the same item is different. 
C) two different markets when the price of two different items is the same. 
D) two different markets when there is no correlation between the markets. 
A) options and futures at the same time. 
B) two different markets when the price of the same item is different. 
C) two different markets when the price of two different items is the same. 
D) two different markets when there is no correlation between the markets.

Question 13

Options generally allow for a more efficient hedge than futures.

Accepted Answer

A) True 
 B)False

Question 14

The margin requirement will be lower than the standard requirement on a stock index futures contract when:

Accepted Answer

A) the stock market is declining. 
B) the futures are used to hedge a portfolio. 
C) the investor is establishing a speculative position. 
D) None of the above 
A) the stock market is declining. 
B) the futures are used to hedge a portfolio. 
C) the investor is establishing a speculative position. 
D) None of the above

Question 15

In a declining market,stock index futures can be used to hedge a stock portfolio to help offset losses in the portfolio.

Accepted Answer

A) True 
 B)False

Question 16

One disadvantage to stock index futures is that there is no opportunity for arbitraging,as there is for stock index options.

Accepted Answer

A) True 
 B)False

Question 17

The Mini S&P 500 contract is made up of different stocks than the traditional S&P 500 contract.

Accepted Answer

A) True 
 B)False

Question 18

Stock index options have very low speculative premiums since the unsystematic risk is almost zero.

Accepted Answer

A) True 
 B)False

Question 19

In order to effectively hedge a stock portfolio,the portfolio manager must know the total dollar value of the portfolio,the current index futures price,and:

Accepted Answer

A) the number of contracts available in the market. 
B) the portfolio P/E ratio. 
C) the relative volatility of the portfolio to the market. 
D) More than one of the above 
A) the number of contracts available in the market. 
B) the portfolio P/E ratio. 
C) the relative volatility of the portfolio to the market. 
D) More than one of the above

Question 20

An investor bought a March S&P 500 Index futures contract in December for $1,490.05.After six months the contract value went up to $1,539.95.The contract has a multiplier of 250.What is the dollar profit?

Accepted Answer

A) $1,996 
B) $19,960 
C) $12,475 
D) $1,247.50 
E) $199.60 
A) $1,996 
B) $19,960 
C) $12,475 
D) $1,247.50 
E) $199.60

Exam 14: Stock Index Futures and Options

The loss on option purchase is always:

Value Line futures contracts trade on the Kansas City Board of Trade.

Some investors are prohibited by law from participating in the futures market.

An investor bought a March S&P 500 Index futures contract in December for $1,490.05.After six months the contract value went up to $1,539.95.The contract has a multiplier of 250.With an initial margin of $20,000,what is the annualized percent return on margin?

A primary difference between stock options and stock index options is:

Futures provide a more efficient hedge than options,in that gains and losses can be more fully offset by futures contracts.

Investing in stock index futures is one way to reduce or eliminate unsystematic risk.

With a given size portfolio,the higher the portfolio beta,

The overuse of portfolio insurance in the market may be dangerous because:

Each of the major stock index futures markets has a corresponding stock index options market.

When basis increases with the passage of time,this is thought to be:

An arbitrage is trading in:

Options generally allow for a more efficient hedge than futures.

The margin requirement will be lower than the standard requirement on a stock index futures contract when:

In a declining market,stock index futures can be used to hedge a stock portfolio to help offset losses in the portfolio.

One disadvantage to stock index futures is that there is no opportunity for arbitraging,as there is for stock index options.

The Mini S&P 500 contract is made up of different stocks than the traditional S&P 500 contract.

Stock index options have very low speculative premiums since the unsystematic risk is almost zero.

In order to effectively hedge a stock portfolio,the portfolio manager must know the total dollar value of the portfolio,the current index futures price,and:

An investor bought a March S&P 500 Index futures contract in December for $1,490.05.After six months the contract value went up to $1,539.95.The contract has a multiplier of 250.What is the dollar profit?

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, exchange-Traded Funds, closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Commodities and Financial Futures

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

a Comprehensive Analysis for Real Estate Investment Decisions

the Makeup of Institutional Investors

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